Question
The U.S. government has a food stamp program for families whose income falls below a certain poverty threshold. Food stamps have a dollar value that
The U.S. government has a food stamp program for families whose income falls below a certain poverty threshold. Food stamps have a dollar value that can be used at supermarkets for food purchases as if the stamps were cash, but the food stamps cannot be used for anything other than food. Suppose the program provides $500 of food stamps per month to a particular family that has a fixed income of $1,000 per month.
How would this family's budget constraint differ if the government replaced the food stamp program with a cash subsidy program that simply gave this family $500 in cash instead of $500 in food stamps? Which would the family prefer, and what does your answer depend on?
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